ESPN evolves with new media

BRISTOL, Conn. 
BRISTOL, Conn. -- In the world of sports, initials signify dominance: Think Hall of Famers such as MJ and LT and all-stars such as TO and AI.

The most recognizable and powerful initials in the sports world, however, don't belong to Michael Jordan, Lawrence Taylor, Terrell Owens or Allen Iverson.

They instead represent a company in Bristol, Conn., that once was responsible just for airing 24/7 coverage of games, highlights and news but now is perhaps the most powerful force in sports.

Now in its 27th year, ESPN, or Entertainment and Sports Programming Network, has become a multibillion-dollar behemoth, a standard offering for nearly every cable and satellite company in America. Moreover, the network no longer is just a broadcaster of events and news but is an essential partner to nearly every sports league.

With six domestic cable channels, Web sites, magazines and radio networks, ESPN already is the largest sports media company in the world.

Over the past several years, it also has emerged as a player in the world of "new media," striking deals to add live sporting events and highlights on the Internet, IPods and wireless phones.

"ESPN has a lot of stuff, and they have a lot of qualities of a great brand," said Rob Frankel, an independent branding analyst based in Los Angeles. "One of the signs of a healthy brand is that others want to follow it. And I don't think people are duplicating it very well."

At its core, ESPN still is a television company. The original cable channel is available in 92.3 million homes, more than any other cable network, and sister channel ESPN2 is available to 91.7 million cable and satellite subscribers. ESPNClassic, ESPNews and the Spanish-language ESPNDeportes are available to a combined 123 million households.

The operation skeptics predicted would fail now is celebrating 10 years as part of Walt Disney Co., one of the world's largest entertainment conglomerates. (Disney owns 80 percent of ESPN, with the remaining 20 percent controlled by the Hearst Corp.)

Analysts expect revenues for ESPN to exceed $5 billion this year and reach $7 billion by 2008.

The name of the sports network is so recognizable that the network struck a deal with ABC, another Disney property, to give all programs once carried under the name of ABC Sports a new label: "ESPN on ABC."

"We're very blessed," said John Wildhack, ESPN's senior vice president of programming, acquisitions and strategy. "We have a brand that resonates with sports fans."

Wherever fans are

In the past five years, the network has transformed itself from a series of cable channels into a diverse media company.

ESPN the Magazine has more than 2 million subscribers, ranking second among sports magazines. The Web site ESPN.com has more visitors than any other sports site, recording more than 17 million unique visitors each month.

Some of the biggest changes at ESPN occurred in the past year with the introduction of services designed to capitalize on the era of "new media."

The company last year introduced ESPN360, a broadband service that shows live games and highlights on the Internet. In February, it introduced Mobile ESPN, a service allowing fans to get scores, highlights and -- eventually -- live games on their wireless phones. Meanwhile, ESPN upgraded its Web site to include video, interactive chats and video games.

"We try to reach sports fans wherever they are," said John Kosner, senior vice president of ESPN New Media. "It gives us a unique way to leverage rights that we acquire and provide a more full experience for sports fans wherever he or she is."

ESPN in 2004 opened a 120,000-square-foot "digital center" that allows producers to edit any highlight and distribute it onto any platform. A clip of Washington Nationals outfielder Alfonso Soriano hitting a home run, for example, can be edited into a highlight for that evening's edition of SportsCenter while also being cut for use on ESPN.com, the ESPN Mobile service or special content for IPods.

"It's revolutionary for us, because the culture at ESPN from the beginning was to conserve money in order to make this into a business," said John Walsh, ESPN's senior vice president and executive editor, who has been with the network since 1988. "We were losing sometimes $60-, $70-, $80 million a year. And one of the ways we survived was to say, we don't always need the latest equipment.

"So all of the sudden to go from that kind of thinking to say, 'You know what? We're going to be the leader in the world in the digital movement!' is a huge step in a different direction."

The company now insists that all contracts with sports leagues and conferences include rights for the Internet and broadband and wireless services. As a result, revenue from sources other than television is expected to increase by 50 percent this year.

"We no longer are a traditional television sports media company," Mr. Wildhack said. "[When] we do deals, we do deals for rights that apply to Internet, to broadband, to wireless. We're a multimedia company. We don't do conventional television deals anymore."

ESPN officials acknowledge that as penetration of ESPN and ESPN2 has increased, so has the burden of keeping ratings high by showing only the most popular games and programs. The new platforms, they said, provide a way for fans of less-popular sports to see what they want.

"What it takes to program two 90-million home cable networks requires a really significant audience delivery to make sense," Mr. Kosner said. "But on ESPN.com or 360, a much smaller audience can make sense."

Swinging for the fences

While ESPN grows its platforms, the network also is spending money with no promise of a big financial return.

ESPN360 still is available only to subscribers of certain Internet providers, and Macintosh computer users have been unable to take advantage of all the service's features.

Mobile ESPN, meanwhile, has failed to catch on with consumers.

The company this summer made sweeping changes to its marketing strategy of Mobile ESPN, introducing more targeted advertising and slashing the price of the phones to $99 from $399.

Merrill Lynch analysts Jessica Reif Cohen and Michael Kopelman in July predicted that 30,000 will subscribe to the service this year, well below original estimates of 240,000. (ESPN declined to comment on those numbers or issue its own projections.)

The analysts said the product, when combined with losses from a similar Disney-branded service, would lose about $135 million after an upfront investment of $150 million.

Disney President and CEO Bob Iger last month acknowledged a "disappointing" response from consumers but said the company would continue the service as a way to expand the ESPN brand.

"We think there is a great opportunity to extend ESPN-branded content to mobile platforms as a way of connecting with our consumers whenever and wherever they are," Mr. Iger said. "... ESPN's presence in mobile platforms is a given into the future."

ESPN officials said the willingness to stick with Mobile ESPN and ESPN360 services is indicative of a risk-reward culture formed in the network's early days.

"When they first hired people who ran the company, they did an unbelievable job," Mr. Walsh said, "because they hired people who had an entrepreneurial spirit, who were great thinkers, who loved sports and who were creative and observant. They've created a culture where people think about what's next."

Exposure vs. control

With size comes power, and leagues and teams can feel ESPN's power in ways good and bad.

ESPN can deliver a vast audience, for example, to a college basketball program that otherwise would get little exposure. But those teams also are, in some ways, at the network's mercy.

Consider the case of college athletics' Mountain West Conference. Mountain West schools until last year received solid exposure on ESPN but only on times and days the network chose.

That meant that many football games were held on Thursday nights rather than the traditional Saturdays. Basketball games occasionally tipped off in the morning or late at night during the week.

"We had issues with the days of the week and with the start times," said Craig Thompson, the conference's commissioner. "We played at 10 a.m. a few times to stay in certain broadcast windows."

So Thompson made a bold decision: The Mountain West bid farewell to ESPN and formed its own regional sports network. The conference this year partnered with CSTV, a college-only sports network owned by CBS, to create a channel devoted entirely to the Mountain West.

The national exposure of an ESPN broadcast was lost, but the conference gained something else: control.

"I have great respect for ESPN," said Mr. Thompson, who still is working to get wide distribution of his new channel. "They were our partners for seven years, and we had a great relationship. We just felt it was time for a new business model."

A mass exodus from ESPN is unlikely, but the Mountain West just may have started something.

The Big Ten conference earlier this year announced a deal with Fox Sports to form its own regional network, with plans to distribute it to every home in the country with basic cable. The Southeastern Conference also is considering its own network.

However, discontent with ESPN in the college ranks is hardly rampant.

On the day the Big Ten announced the creation of its network, it also announced a new 10-year deal with ESPN and ABC.

ESPN has enough confidence in the college market that it is working hard to distribute ESPNU, its own colleges-only station introduced last year.

But the emergence of conference-owned networks, as well as the solid growth of CSTV on television and online, means more entities are competing for the rights to show the top college events.

"There's always tremendous competition out there," Mr. Wildhack said. "It introduces a new dynamic, but we feel we're in a leadership position in terms of our overall college distribution strategy."

Appearance of conflict

As ESPN grew, it became a go-to place not only to watch games but also for information about sports.

That can create conflicts of interest, as the network reports on organizations that also happen to be its largest business partners.

"Trying to cover these businesses can present a natural conflict, and ESPN's doing it on a big level with a lot of money at stake," said Kelly McBride, an ethics-group leader at the Poynter Institute, a nonprofit school for professional journalists.

ESPN executives acknowledged potential conflict but said their reporters are told to aggressively cover leagues, teams and players.

Officials also cite the network's investigative series "Outside the Lines" and the fact that many of ESPN's reporters come from the ranks of traditional journalism.

"On one hand, we're the largest business partner of sports organizations, teams and so forth in the world," said Vince Doria, ESPN's senior vice president and director of news, himself a former editor for the Boston Globe. "On the other hand, I think we are one of the most aggressive news-gathering entities in the sports landscape. Some might look at that and say those things don't seem compatible, and maybe if you were inventing it right now, you'd think about it differently."

ESPN was criticized this year for airing a reality series that chronicled the daily routine of San Francisco Giants outfielder Barry Bonds.

Airing the "Bonds on Bonds" show made ESPN a business partner with the controversial slugger at a time when he also was under intense scrutiny for accusations of steroid use and for his pursuit of the all-time home run record.

"That was a bad judgment," said Christopher Hanson, a professor of journalism ethics at the Phillip Merrill College of Journalism at the University of Maryland. "They sort of created their own conflict of interest by doing that."

Mr. Doria said the network avoided ethical problems with the "Bonds on Bonds" series by forbidding reporting on any information gathered during the production of the show.

"There's a pretty strong ethic to not allow the business side to interfere with the editorial side," Mr. Doria said. "This is how it evolved for 27 years now, and I think we manage it pretty well."

Battling to be the best

ESPN is the most dominant sports network on television, but, as the emergence of the new college networks shows, the battle for programming rights is ultracompetitive and ultraexpensive.

ESPN's deal with the National Football League, for example, is worth $1.1 billion each year -- just to televise one regular-season game per week.

The rights to NASCAR were so expensive that ESPN could afford only the final 17 races on the 38-event schedule, plus Busch Series events.

Some analysts predict the company's operating income will be flat next year as it takes on the first year of the new massive contracts.

But ESPN says that is just all part of the game.

Said Mr. Wildhack: "That's fine. You want to have a good, healthy competition, because that means you're probably in a pretty good business. If you're in a business and you don't have any competition, you're probably in the wrong business."